Ardagh Group’s riskiest bonds have fallen below 20 cent on the euro for the first time as investors brace themselves for an update this week on how the glass and metal containers group plans to reduce the burden of its $12 billion-plus (€11bn) debt pile.
Some €795 million of bonds issued by a holding company at the top of the group’s complex corporate structure – called ARD Finance – and due for repayment in 2027 dipped to 9.4c last week. They had been trading at close to 80c a year ago.
Ardagh, which has delivered weak earnings in recent quarters, reports its latest set of results on Thursday.
The group secured at least $1.05 billion of loans in April from US alternative asset manager Apollo to refinance $790 million of bonds that mature next year and buy up some of the 2027 debt at a discount to its original value.
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Ardagh has been turned by Irish financier Paul Coulson into one of the world’s largest glass and metal container makers over the past 25 years
Holders of the 2027 so-called payment-in-kind (PIK) notes would stand at the back of the queue to be repaid in the unlikely event of the company running into financial trouble.
The cost of insuring Ardagh debt against default in the co-called credit default swaps market have also shot up this month, according to Bloomberg data.
Fitch, one of the world’s leading debt ratings agencies, said in May that Ardagh’s current capital structure, with high levels of borrowings, was “unsustainable given its weak operating performance”. It downgraded its credit rating on Ardagh by two levels to CCC, which is eight rungs deep into “junk”, or non-investment grade, territory.
“Refinancing risk has risen considerably due to a limited recovery in Ebitda, increased leverage, a material interest burden, and a complex capital structure that limits financial headroom and flexibility,” Fitch said. Ebitda refers to earnings before interest, tax, depreciation and amortisation.
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“While the Apollo deal addresses the 2025 [senior secured notes] maturity, we view refinancing risk as excessive with material debt maturities in August 2026,” it added.
Some $2.55 billion of bonds fall due for redemption in 2026. Still, the 2026 bonds, which are high ranking and secured against certain Ardagh assets, are currently trading between 80 and 84c on the euro. Senior secured 2027 notes are changing hands at close to 99c, but unsecured debt is trading at much lower levels.
Various groups of bondholders have been actively hiring consultants in recent times for advice on how to handle potential debt-reduction negotiations with Ardagh.
Bloomberg reported late last month that certain secured, unsecured and PIK noteholders have brought in investment bank PJT Partners and US law firm Akin Gump Strauss & Feld.
US financial services firm Perella Weinberg Partners and law firm Gibson Dunn & Crutch have been enlisted by another collection of creditors. A separate group of PIK note holders retained New York law firm Milbank earlier this year.
A spokesman for Ardagh declined to comment.
Group chairman Herman Trotskie said three months ago that Ardagh is looking at “all options” to reduce the burden of the group’s debt, after the $12.3 billion pile expanded to 9.6 times earnings before Ebitda from 8.7 times over three months to March, driven by a decline in earnings.
Ardagh, which traces its roots to the long-closed Glass Bottle factory in Dublin’s Ringsend, has been turned by Irish financier Paul Coulson into one of the world’s largest glass and metal container makers over the past 25 years through a series of debt-fuelled acquisitions.
Debt ratings agency Fitch said in May that Ardagh’s current capital structure, with high levels of borrowings, was ‘unsustainable given its weak operating performance’
Mr Coulson stood down as executive chairman late last year, but remains on the board and holds an effective 36 per cent stake in the group.
Group revenue declined to $2.17 billion in the first quarter from $2.27 billion for the same period last year, while Ebitda fell to $254 million from $339 million, driven by declines in its glass bottle-making business as drinks companies cut back orders to run down packaging supplies.
Ardagh’s drink cans business, Ardagh Metal Packaging (AMP), delivered earnings growth in the first quarter. Ardagh and its joint venture partner in food cans business Trivium are known to be looking to sell the company, of which Ardagh owns 42 per cent.
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